Holiday pay: should it include commission?

Another legal battle over whether English law requires employers to boost workers’ holiday pay to include commission payments has commenced in the Employment Appeal Tribunal (EAT).

The long-running case centres on Mr Lock, a former British Gas salesman, whose commission payments made up around 60 per cent of his remuneration. Back in 2012, he complained to an employment tribunal that he had suffered reduced income as a result of taking holiday. This was because he was unable to generate commission during his holiday and thus his earnings in the period following the holiday were affected. This, he said, was a breach of the Working Time Regulations (WTR).

The employment tribunal referred the case to the European Court of Justice (ECJ), who held that it would be contrary to the Working Time Directive to exclude commission that is directly linked to the work carried out from holiday pay, as to do so might deter a worker from taking their annual leave.

The case returned to the tribunal, who had to determine the extent to which the WTR could be read consistently with EU law, and if it could not, whether words could and should be added to the legislation to achieve that result. The employment tribunal decided that the proper course of action was to add words to the WTR to the effect that commission payments should be included in holiday pay. In doing so, the tribunal also relied on the case of Bear Scotland in which the same result had been achieved in relation to overtime payments.

It is this decision that now forms the subject of the two day appeal in the EAT. British Gas will argue that the domestic legislation cannot be interpreted in the way decided by the tribunal. In addition, it will claim that, as overtime is dealt with under different provisions, it should not have any bearing on a case about commission.

It is likely to be some months before we see the decision from the EAT. However, whichever way it goes, the principle that commission must be included in holiday pay has been firmly established by the ECJ and will not change – it is the mechanics as to how this will be achieved through domestic legislation that will be at stake. The important issue for employers – how to calculate the commission element of holiday pay – was set aside by the tribunal for a later stage of the litigation. Whether that later stage has now arrived remains to be seen.